Extending the special procedure for calculating withholding tax in relation to certain payments to “unfriendly” counterparties

General comments

Further to our series of publications on changes to tax law, we would like to bring to your attention the following important provisions of Federal Law No. 425-FZ dated 28 November 2025 (“Federal Law No. 425-FZ”).

Clauses 20 and 23 of article 25 of Federal Law No. 425-FZ extend the right to the application of reduced profits tax (withholding tax) rates or to the exemption under international tax conventions (tax treaties) with unfriendly states (special procedure). Such special procedure applies to the following payments made by Russian companies in favour of residents from unfriendly states:

1. income (including interest income) payable to foreign export credit agencies and foreign banks;
2. income from leasing aircraft (including auxiliary power units and/or aircraft engines);
3. income from exercising and/or granting rights to broadcast international and foreign sport competitions and events (including the Olympic Games, Paralympic Games and Deaflympic Games; European, world or other championships and cups); and
4. income from using and/or granting rights to use a number of intellectual property items (we will elaborate on this category of income further in more detail).

Certain provisions of tax treaties with unfriendly states were suspended by Presidential Decree No. 585 of 8 August 2023 (“Decree No. 585”) and later by Federal Law No. 598-FZ of 19 December 2023 in pursuance of Decree No. 585. We previously covered this in detail in our newsletter.

With a view to securing measures aimed at mitigating the adverse effect of the consequences of such tax measure on the Russian economy (as provided in clause 3 of Decree No. 585), a new provision — clause 3.1 — was added to article 310 of the Russian Tax Code. This new clause provides for the right to apply a tax exemption or reduced tax rates under suspended tax treaties subject to certain conditions.

Initially, it was assumed that this special procedure would be in effect only until 31 December 2025, but the federal law at issue extended its effect until 31 December 2028 inclusive (with the exception of interest income). In relation to interest income, the special procedure will apply until 31 December 2035 inclusive (article 25, clause 23 of Federal Law No. 425-FZ).

Therefore, the types of taxes specified above (subject to certain changes introduced by Federal Law No. 425-FZ) are still subject to the exemptions or reduced tax rates established in the applicable tax treaty with the relevant unfriendly state. However, this special procedure may apply only subject to the simultaneous fulfilment of the following conditions:

1. prior to the adoption of Decree No. 585, such income either had been or had not been liable to Russian withholding tax at the relevant reduced rates established by the tax treaty;
2. the Russian entity paying the income and the foreign entity receiving the income are not related parties in the meaning of article 105.1 of the Russian Tax Code; and
3. the foreign organisation has provided the tax agent with the confirmatory evidence required under article 312, clause 1 of the Russian Tax Code, i.e. (i) a tax residency certificate or another supporting document and (ii) a letter (other document) confirming the status of the foreign counterparty as the beneficial owner of the specified income.

Where the abovementioned conditions are not satisfied, the Russian tax agent will, accordingly, assess and withhold tax on the mentioned types of income from Russian sources at the basic tax rate set by the Russian Tax Code, i.e. 25%.

Special procedure in relation to income from the use of intellectual property (IP)

Most of the mentioned types of income are industry specific.

It is equally important that, among other things, the Federal Law in question has substantially reduced the list of IPs to which such special profits tax (withholding tax) calculation procedure may apply.

Changes introduced by Federal Law No. 425-FZ to the special procedure for the taxation of income from the use of IP from the relevant list take effect from 1 January 2026. Therefore, from the perspective of the temporary application of the provisions of article 310, clause 3.1, paragraph 4 of the Russian Tax Code, two periods should be distinguished:

1. from 8 August 2023 to 31 December 2025 (inclusive) — reduced withholding tax rates (or exemptions) established by the suspended tax treaties applied in relation to income from the use of a “broad list” of IP in the older version of such paragraph, which included (article 6, part 1 of Federal Law No. 539-FZ dated 27 November 2023):
1. copyright and/or neighbouring rights (any works of literature, art or science, including computer programmes, cinematographic films, phonograms, tape or other recordings for use in radio and TV programmes or other means of reproducing and disseminating information); and
2. patents, drawings, models, diagrams, secret formulas, technology and information on industrial, commercial or scientific experience (know-how).
2. from 1 January 2026 to 31 December 2028 — the special licence fee taxation procedure in question in the given period applies only to a reduced list of IP. Now it includes only the following IPs: patents, drawings, models, diagrams, secret formulas, technology or information on industrial or scientific experience (know-how).

In the new version of the provision, reference to copyright-protected and related rights protected items, including computer programmes, is excluded. It is therefore unclear whether payments for the use of computer programmes may be subject to the special taxation procedure due to them being qualified as “technology” or information on industrial or scientific experience. Such unclarity is caused by the difference in the treatment of such objects under civil and tax law, as under civil law computer programmes qualify as stand-alone copyright-protected items. At the same time, in certain cases, computer software may be viewed as a constituent part of technology or know-how that constitutes a combination of technical solutions and confidential information, which may be decisive for the relevant payments in terms of their tax treatment.

It is also important to note that income received by a foreign organisation under contracts on the alienation of exclusive IP rights or rights to the means of individualisation is not liable to Russian withholding tax according to article 309, clause 2 of the Russian Tax Code if the right holder’s activities do not give rise to a permanent establishment in the Russian Federation pursuant to article 306 of the Russian Tax Code. This procedure (i) applies for an unlimited term, (ii) irrespective of the type of IP rights which are being alienated, and (iii) even in the case of the payment of income to residents from unfriendly states (Letter of the Ministry of Finance of the Russian Federation No. 03-08-09/120967 dated 14 December 2023).

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The Denuo team would be pleased to assist you with evaluating the impact of these changes on current structures and planned transactions with the residents of unfriendly states, as well as to examine the corporate and contractual set-ups, financial and economic conditions of such transactions from the perspective of the potential application of the special procedure (taking into account the changes being analysed).